RBI MPC meeting: Central bank slashes repo rate by 25 bps to 5.25% from 5.5%

The Reserve Bank of India’s Monetary Policy Committee (MPC) on December 5 decided to reduced the the repo rate by 25 basis point to 5.25% form 5.5% and maintain its “neutral” policy stance, signalling a wait-and-watch approach amid steady inflation and cautious growth.

December RBI monetary policy

Repo rate unchanged at 5.25% Policy stance maintained at ‘Neutral’ MPC members unanimously voted to cut repo rate by 25 bps

October RBI monetary policy:

Policy Measures:

Repo rate unchanged at 5.50% Policy stance maintained at ‘Neutral’ CRR at 3% SDF rate at 5.25% MSF rate at 5.75% Bank Rate at 5.75% MPC members unanimously voted to keep repo rate unchanged

Other highlights

> The RBI has revised its FY26 GDP growth forecast sharply upward to 7.3%, from the earlier estimate of 6.8%. The quarterly projections have also been raised across the board:

Q3 FY26 upgraded to 7% from 6.4%

Q4 FY26 increased to 6.5% from 6.2%

Q1 FY27 revised to 6.7% from 6.4%

Q2 FY27 pegged at 6.8%

> The RBI announced a set of liquidity-support measures, including ₹1 lakh crore of OMO purchases and a three-year USD/INR swap worth $5 billion, both scheduled for December.

> Core inflation moderated in the second quarter and is expected to remain contained, aided by softer precious metal prices. The RBI now projects full-year CPI inflation at 2%, lower than the outlook provided in October.

> Economic activity across the country remains firm, underpinned by strong rural demand and a steady urban recovery. Agriculture continues to play a significant role in driving growth, supported by healthy crop output and comfortable reservoir levels.

> Manufacturing momentum is strengthening, while services exports are expected to hold up well even as merchandise exports face global pressures.

> Government bond yields eased following the liquidity announcement. The 10-year benchmark yield declined 3 basis points to 6.47%, compared with the previous close of 6.51%.

What analysts said

Ahead of the September-quarter GDP release, a Reuters poll indicated that most economists expected the RBI to deliver a 25-basis-point cut in the repo rate to 5.25% at the December meeting, followed by an extended pause through 2026. An Informist survey reflected a similar trend: 17 of 20 economists anticipated a rate cut at the end of the MPC’s three-day review. Sixteen expected a standard 25-bps reduction, while India Ratings and Research projected a slightly deeper cut of 25–50 bps.

The stronger-than-expected GDP print for July–September, with growth at 8.2%, has prompted several analysts to upgrade full-year projections above 7%. This performance is close to India’s estimated potential growth band of 6.5–7%, considered the upper limit of non-inflationary expansion. The RBI itself forecasts FY26 growth at 6.8%, slowing to 6.4% in the December quarter and 6.2% in the March quarter.

A separate CNBC-TV18 poll showed economists divided but leaning toward a cut: 60% expected a 25-bps reduction, while 40% predicted a pause at 5.50%. Those expecting a cut largely believe the easing cycle is almost over—most see December as the final move, with only a minority expecting additional action in February. The preferred terminal rate remains 5.25%, while smaller groups foresee 5.50% or a further decline to 5%.

"The repo rate cut, along with liquidity easing measures, announced by the RBI is exactly in line with our expectations. With RBI continuing to leave room open for further easing, we do not rule out another 25bps cut, with the likely terminal rate at 5% followed by a prolonged pause," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

"As expected, and staying committed to its mandate of inflation targeting central bank, RBI’s MPC cut policy repo rate by 25 bps via a unanimous vote. We believe that there would be scope for another 25 bps cut this cycle, as inflation is expected to remain benign and despite high real GDP print there are no signs of overheating in the economy. The all-time low print of inflation ex gold, silver, food and petroleum products ( ex of covid period) confirms the same," said Garima Kapoor,  Deputy Head of Research & Economist at Elara Capital on the RBI Monetary Policy.